Risk Capability 2.0 - Moving Beyond the Tipping Point

At DHG Healthcare, our broader industry perspective is technically grounded in a concept we refer to as "Risk Capability." This technical perspective is supported by considerable foundational detail, but generally speaking we believe that healthcare organizations (principally providers, but increasingly encompassing other non-payer emerging industry players) must gain a baseline level of organizational wherewithal to both responsibly and confidently accept a revenue contract with risk characteristics. Importantly, the level of urgency and pace associated with core institutional goals in this respect must match related market demand, both currently evidenced and as might be anticipated over a longer term.

The concept of Risk Capability has been core to DHG Healthcare's technical perspective for close to six years now. Over this period, we have helped hundreds of organizations in their individual journeys towards achieving Risk Capability as we (and they) define the term. Central to that work is the idea of how markets are evolving relative to the mix of fee-for-service ("FFS") vs. non-FFS medicine. The term "tipping point" has emerged in the industry lexicon as an overarching term to describe that point at which the evolution of non-FFS medicine captures organizational attention and becomes a meaningful driver of institutional strategy and execution.

Our national market observations indicate that we have, in virtually all markets, now moved beyond "the tipping point" as defined above. In fact, we strongly believe that, while recognizing that in many markets core industry profitability remains currently rooted in FFS medicine, the strategic and executional focus of the vast majority of organizations we encounter is shifting to an operational playbook build that articulates a strategic platform and execution framework built on value-based care and population health.

This active transition underway in U.S. healthcare is a compelling development for attention and further study. Clearly, there is a need for continued consideration of FFS medicine and related revenue streams given their more immediate impact on operating margins (depending, of course, on payer mix and market evolution), and we recognize that ongoing effective management of this dynamic – as the organization makes the turn towards its unique risk capability focus – is a sophisticated skill in and of itself. Nevertheless, the emergence of a dominant risk capability focus in the strategic planning of most institutions is a remarkable development, given the long path to this point along the industry's journey. Having reached this point doesn't mean that executing this new focus is itself any less complex, as explicit consideration of a number of key transformational characteristics "beyond the tipping point" is required, including:

  • The complex and provocative federal regulatory environment is important but not overriding;
  • Changes in state Medicaid programs may well be fundamentally transformative in the nearer term (potentially leading vs. following federal programs); 
  • The business model disruption associated with traditional payer relationships requires new, forward-looking strategies (which may be unique, novel and/or nascent) to ensure business opportunity in disruption is properly considered;
  • Internal initiatives require new levels of discipline, and affordability mandates alignment of those initiatives;
  • Clinical transformation cannot be a "boil the ocean" program and must be well-aligned with non-clinical operational change (including alignment with broader institutional strategies, deeper understanding of population characteristics, and views towards future economic sustainability); and, among others,
  • The industry seems to be recognizing that healthcare is, by some important practical definition, emerging as a "right" – and, if that is the case, it is critical that health similarly emerges as a personal and societal obligation – therefore, we believe that the high-performing healthcare organization understands how to effectively plan for, reconcile, and execute around this crucial concept.